Bringing ‘Lean’ Principles to Service Industries

by
Julia Hanna

Toyota and other top manufacturing companies have embraced, improved, and profited by lean production methods. But the payoffs have not been nearly as dramatic for service industries applying lean principles. HBS professor David Upton and doctoral student Bradley Staats look at the experience of Indian software services provider Wipro for answers. Key concepts include:

In terms of operations and improvements, the service industries in general are a long way behind manufacturing.

Not all lean manufacturing ideas translate from factory floor to office cubicle.

A lean operating system alters the way a company learns through changes in problem solving, coordination through connections, and pathways and standardization.

Thanks to the pioneering success of Toyota, the concept of a "lean" operating system has been implemented in countless manufacturing companies and even adapted for industries as diverse as insurance and healthcare.

With its focus on standardization, quality improvement, cost reduction, and efficiency, lean's influence (and various interpretations of its tenets) continues to grow. In their working paper "Lean Principles and Software Production: Evidence from Indian Software Services," HBS doctoral student Bradley Staats and professor David Upton examine what happens when Wipro Technologies, an Indian outsource provider of software services, launches its own lean initiative.

"In terms of operations and improvements, the service industries in general are a long way behind manufacturing," Upton says. "The motivation for this work was to gain some well-grounded research on how improvements can be brought to services through some of these lean concepts."

Not all lean manufacturing ideas translate from factory floor to office cubicle. For example, tools such as the andon cord, a rope that manufacturing workers pull when they encounter a problem on the line, are not directly replicable in software as there is no line to stop.

"What we hope to do," Upton says, "is to distill the relevant aspects of lean manufacturing so that managers can see how these tools were applied successfully in a service environment similar to their own."

Unfortunately, lean's prevalence has led to some misconceptions.

"Some people think lean means 'not fat,' as in laying people off," Upton says, noting that in their paper they propose that the difference in a lean operating system comes from how it alters the way a company learns through changes in problem solving, coordination, and standardization.

They also draw on a framework of 4 principles of the Toyota Production System defined by HBS professor Kent Bowen and Steven Spear (HBS DBA '99):

Rule 1: All work shall be highly specified as to content, sequence, timing, and outcome.

Rule 2: Every customer-supplier connection must be direct, and there must be an unambiguous yes or no way to send requests and receive responses.

Rule 3: The pathway for every product and service must be simple and direct.

Rule 4: Any improvement must be made in accordance with the scientific method, under the guidance of a teacher, at the lowest possible level in the organization.

Wipro Gains Efficiency

In the paper, Staats and Upton describe how Wipro first launched its lean initiative in 2004 with a core team of managers. The small group visited lean manufacturing companies and discussed the concept's basic principles before each manager adopted a project in order to implement this new approach to software services. Of the projects, 8 out of 10 showed greater than 10 percent improvement in efficiency.

With those results in hand, the core team decided to roll out the approach across the firm. By the end of 2006, Wipro had 603 lean projects completed or in the works (the company typically had 1,100 projects under way at any one time).

"One of the important lessons we've seen on the ground is how Wipro approached the launch of this lean initiative," Staats says. "They didn't come out with big banners and say, 'OK, today your work is lean work, and yesterday it wasn't.' They started with a small group and recruited other people from there. It was a very controlled experimentation."

In their research, Staats and Upton document how the use of lean principles affected the workflow at Wipro. The concept of "kaizen," or continuous improvement, for example, resulted in a more iterative approach to software development projects versus a sequential, "waterfall" method in which each step of the process is completed in turn by a separate worker.

By sharing mistakes across the process, the customer and project team members benefit individually and collectively from increased opportunities to learn from their errors; the project also moves along more quickly because bugs are discovered in the system earlier in the development process.

Wipro also uses tools specific to the software development process based on lean principles. The DSM (design structure matrix), for example, defines connections and pathways for a project's workflow and suggests an order of tasks. A complementary tool, the SCE (system complexity estimator), ranks a software module based on its complexity and compares its actual architecture with its ideal (simplest) architecture in order to learn where a team might need more or fewer skilled members. The company also employs the more familiar lean technique of value stream mapping (VSM) to identify and decrease wasted time and effort throughout the software development process.

Improving From The Bottom Up

While most organizations struggle with implementing a new system, fighting the general inertia that many employees experience when faced with yet another new initiative, the goal of lean is to open up the work process and abolish the usual hierarchies. According to Staats, this seems to have happened at Wipro.

"It was interesting to talk to some of the less senior team members, because they were getting involved in much bigger-picture issues than they ever had before," he says. "In the case of value stream mapping, every member of the team was able to get a sense of the overall picture of what they were doing and spot problems they wouldn't have been able to see before."

“It's about unlocking the power of thousands of software engineers."—Bradley Staats

Staats suggests that the use of lean principles at Wipro could have qualities of a "Trojan Horse initiative." From the outside, lean accomplishes the short-term goal of productivity (getting inside the city's gates), but it could also lead to more radical, innovative change (the sacking of Troy).

"One of the main ideas behind lean is to take parts of a task that don't require human intervention and give them to machines so that humans can focus on the important issues," Staats explains. "The same is true in software, where you have the added benefit of being able to give some of your work to a computer, which can process it more reliably and quickly than a human."

More time, coupled with a better understanding of the different moving parts of a project, creates feelings of empowerment in workers who haven't traditionally taken part in innovation.

"It's about unlocking the power of thousands of software engineers and encouraging innovation up and down the organization," Staats says. "You can impact productivity while also changing the problem-solving capabilities of the organization."

Ideas Into Action

Wipro is typical amongst Indian firms in its thirst for knowledge, Upton adds.

"These companies are intellectual environments. People are very interested in taking conceptual ideas and figuring out how to put them into practice. There's not the same division between the 'real world' and university research that you often encounter in the United States."

Staats and Upton traveled to Wipro's offices in Bangalore on multiple occasions, interviewing employees at all levels to examine the company-wide effects of lean; they plan to return to India this fall and will continue to monitor developments at Wipro.

Says Upton, "There's a question as to where things go down the road: whether this continues to be a lean implementation or evolves into the Wipro Production System when they develop enough new approaches to their work. We want to stay around that question to reflect on it and apply it to services more broadly."